FedEx

(FDX) - Get Report

, the giant overnight delivery company, exceeded Wall Street's earnings expectations Thursday, as it reported a 45% increase in its net income despite higher fuel costs and severe winter storms over the past three months.

The Memphis, Tenn.-based company said it earned $113 million, or 39 cents a share, in the quarter ended Feb. 29, compared with $78 million, or 26 cents a share, in the year-earlier period.

The latest quarter's results exceeded the 34-cent-a-share consensus estimate of analysts polled by

First Call/Thomson Financial

by 5 cents a share and beat the highest estimate by a penny.

FedEx's shares gained 7/8, or 2%, to 38 1/8 Thursday morning.

The 1999 third-quarter figures included contingency costs for a possible strike by FedEx pilots. Without those costs, for a strike that did not occur, the company would have earned 44 cents in the year-earlier quarter.

Revenues rose 10%, to $4.5 billion, from $4.1 billion in the 1999 quarter.

Higher prices increased FedEx's fuel expense during the quarter by more than $100 million. The company expects fourth-quarter fuel costs to increase $75 million over the prior fourth quarter but will "mitigate these expenses by revenue generated from fuel surcharges," Alan Graf, executive vice president and chief financial officer, said in a statement.

But some experts don't think that task will be a simple one in the next quarter. "Higher fuel prices combined with higher interest rates are not good signs of future earnings prospects for the transports, despite the fact that we have enjoyed some tremendous economic growth of late,'' Douglas Rockel, transportation analyst with

ING Barings

, said in a statement to

The Wall Street Transcript

.

Analysts are looking for an 8% increase in fourth-quarter earnings over the prior spring quarter.

In January, the company moved to extend the FedEx brand to its ground-based freight handlers, its trucking unit

RPS

, and to offer a single point of access to customers for sales, customer service, billing and automation systems.

FedEx is also taking steps to get into higher-growth areas. For example, earlier this month the shipper started a new premium home delivery program to provide appointment and evening delivery, a service not currently available to most residential clients.

The home market is a sector that is expected to more than double by 2003 as online purchases surge, FedEx said.